As the financial crisis attacks the economy, there is growing pressure on governments around the world to introduce fiscal stimulus programmes. This follows big interventions in the financial sector, massive easing of monetary policy, especially in the US, and substantial loosening of fiscal policy. The fact that there are time lags between these interventions and their effects seems to have been ignored.

The assumption appears to be that fiscal stimulus will automatically revive private spending. But this belief contrasts with data that show there is considerable uncertainty about the size and nature of the stimulus required to cause spending to increase.